2006 (7) TMI 699 - SC - Companies Law

Summary

Issues Involved:
1. Validity of the Power of Attorney.
2. Legality and enforceability of the sale agreements.
3. Allegations of fraud, conspiracy, and public policy violations.
4. Plaintiff's readiness and willingness to perform the contract.
5. Specific performance of the contract.
6. Judicial discretion in granting specific performance.

Detailed Analysis:

1. Validity of the Power of Attorney:
The defendant No.1 Company argued that the Power of Attorney granted to defendant No.2 was void as it was contrary to the Memorandum and Articles of Association. The trial court's view was that the Power of Attorney was invalid due to non-compliance with Article 19A(i) of the Articles and Memorandum of Association. However, the High Court did not find this argument tenable and focused on the enforceability of the contract.

2. Legality and Enforceability of the Sale Agreements:
The agreements for the sale of property were questioned on the grounds of being pre-planned and executed simultaneously as an integrated inseverable transaction. The trial court dismissed the suit citing that the agreements were devised to defraud payment of stamp duty and income tax and were opposed to public policy under Section 23 of the Contract Act. However, the High Court found that there was full disclosure of both agreements (Exhibits A-4 and A-5) in the plaint and noted that the plaintiff was ready and willing to pay the balance amount. The High Court decreed the suit for specific performance, stating that the consideration for the sale was Rs. 8 lakhs and not Rs. 5 lakhs.

3. Allegations of Fraud, Conspiracy, and Public Policy Violations:
The defendants alleged that the agreements were part of a conspiracy to commit fraud and cheat the defendant No.1 Company and the State Government of legitimate stamp duty. They argued that the agreements were void under Section 24 of the Contract Act due to being opposed to public policy. The High Court, however, noted that the payment of Rs. 3 lakhs was accounted for in the books of account and made by demand drafts, dismissing the allegations of fraud and public policy violations.

4. Plaintiff's Readiness and Willingness to Perform the Contract:
The trial court initially dismissed the suit on the grounds that the plaintiff was not ready and willing to perform his part of the contract as required under Section 16 of the Specific Relief Act. The High Court, however, found evidence that the plaintiff was ready and willing to pay the balance amount and had the capacity to do so. The High Court emphasized that the plaintiff's conduct was blemishless and he was entitled to specific performance.

5. Specific Performance of the Contract:
The High Court decreed the suit for specific performance, directing the defendants to execute and register the sale deed in favor of the plaintiff after receiving the balance sale consideration. The High Court also directed the payment of the balance court fee on the plaint and appeal based on the consideration for sale being Rs. 8 lakhs.

6. Judicial Discretion in Granting Specific Performance:
The principles relating to the enforcement of a tainted transaction were discussed, referencing various cases such as A.C. Arulappan v. Ahalya Naik and K. Narendra v. Riviera Apartments (P) Ltd. The Supreme Court noted that granting specific performance is an equitable relief and courts must consider all facts and circumstances, including the conduct of the parties and potential hardships. The High Court's decision to grant specific performance was upheld, as it was found that the plaintiff was ready and willing to perform his part of the contract and there was no undue hardship to the defendants.

Conclusion:
The Supreme Court upheld the High Court's judgment, dismissing the appeal and confirming the decree for specific performance of the contract. The appeal was dismissed without any order as to costs.